Capital Investments at WD-40 (NASDAQ:WDFC) Point to Bright Future


There are a few key trends to look out for if we want to identify the next multi-bagger. First, we’ll want to see proof to return to on capital employed (ROCE) which is increasing, and on the other hand, a based capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. Therefore, when we looked at ROCE trends at WD-40 (NASDAQ:WDFC), we liked what we saw.

Understanding return on capital employed (ROCE)

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. To calculate this metric for WD-40, here is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.25 = $85 million ÷ ($421 million – $81 million) (Based on the last twelve months to November 2021).

So, WD-40 has a ROCE of 25%. This is a fantastic return and not only that, it exceeds the 17% average earned by companies in a similar industry.

Check out our latest analysis for WD-40

NasdaqGS: WDFC Return on Capital Employed April 6, 2022

Above, you can see how WD-40’s current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you want, you can check out analyst forecasts covering WD-40 here for free.

What does the ROCE trend tell us for WD-40?

WD-40 is to be commended for its yields. Over the past five years, ROCE has remained relatively stable at around 25% and the company has deployed 26% more capital into its operations. With such high returns, it’s great that the company can continually reinvest its money at such attractive rates of return. If WD-40 can continue like this, we would be very optimistic about its future.

What we can learn from the ROCE of WD-40

In summary, we are pleased to see that WD-40 compounded returns by reinvesting at consistently high rates of return, as these are common characteristics of a multi-bagger. So it’s no surprise that shareholders have earned a respectable 83% return if they’ve held for the past five years. So while the positive underlying trends can be explained by investors, we still think this stock deserves further investigation.

If you want to know the risks that WD-40 faces, we found out 2 warning signs of which you should be aware.

High yields are a key ingredient to strong performance, so check out our free list of stocks generating high returns on equity with strong balance sheets.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.


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